Pensions aren’t perks – they’re pay!


governance 2

We are close to the AGM season for big companies, who’s executive reward comes under scrutiny from shareholder activists, keen to ensure proper governance and stakeholder fairness.

This year the issue of pensions as part of executive pay – is to the fore.

The sums involved are – relative to profit and loss – quite small; but the amounts paid into some executive’s pensions can be – to you and me – eye watering.

The table below is taken from an FT article on the matter and shows which companies are likely to incur the wrath of those charged with monitoring good corporate governance. Interestingly it still refers to pensions as “perks”. In my view, pensions are now part of pay by right.


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Pension experts may find this surprising and I’m not at all sure that the story is quite as simple as it looks from the chart above.

If we assume an average FTSE exec has a base pay of £400k, even a 10% pension award would completely use up the annual allowance. Any kind of DB accrual would bust the “AA” leading to penal taxation on the excess.

Similarly, unless all these execs are totally protected against the negative impact of breaching the Lifetime Allowance, much of the long-term tax advantage of our EET system will be lost to them.

In the complex world of executive reward, any such penalties are compensated for – elsewhere in total remuneration.

What I find surprising – and a little frustrating – is that we are still treating pension contributions as apart from (rather than a part of) pay.

While I applaud what the Investment Association is saying (reported in FT)

The Investment Association, the UK trade group, recently sent a letter to remuneration chairs at FTSE 350 companies, saying pension contributions for executive directors should be equal those received by regular employees.

It shouldn’t need to be said.

What appears to be happening in pensions is that the pension award is being treated in isolation from remuneration as a whole. This enables executives to argue that their pension contributions – if they have to be cut – should be compensated for independently of other remuneration considerations,

The change at Standard Chartered has been criticised as, while it took Mr Winters’ pension contribution rate down from 40 to 20 per cent, his pension contribution actually increased. This was because the new rate was based on a “total pay” figure — combining his salary and share award — compared with a base salary figure in previous years. As a result, his pension contribution rose from £460,000 to £474,000, prompting one large investor to describe the change as “smoke and mirrors”.

This is unsophisticated stuff, and you don’t need to be a detective to spot chicanery. What worries me more are the pseudo pension schemes – typically dressed up as “retirement benefit schemes” which fall outside of the approved pension system and into a demi-world of misunderstanding. I suspect that much of the row about Lloyd’s CEO’s package falls into this category.

Pension contributions are part of pay – whether into approved or unapproved pay, the compartmentalization of  reward into differing components is a construct from technicians whose sophistication is presumably part of their “value add”.

Dressing up differing types of deferred pay like this is bad for corporate governance and not very good for pensions.


Pension contributions are pay, albeit they produce deferred pay – even if the deferred reward has to be converted into pension by the recipient.

There is no argument that suggests that executives need double deferred pay. The contributions made against their salary are bigger because their salaries are bigger. If it becomes more efficient to flex the deferred payment to immediate payment, then that can be done, but there does not need to be compensation for the loss of pension efficiency created by Government legislation (AA and LTA).

Infact – remunerating execs more because some aspects of pension taxation have become progressive (taxing the rich to pay the poor), should be seen in the context of most pension taxation being regressive. The vast majority of the tax-perks around pensions are enjoyed by the top 10% of earners and 1.2m employees aren’t getting the HMRC funded incentives on pension contributions they’ve been promised.


There should be a clear link between the pension strategies pursued by employers to their staff and the pension reward made to the people who create those strategies – the executive.

I don’t just mean that they should get the same percentage of salary as their pension reward. I mean that if they are operating pension schemes which are exacerbating the unfairness of pensions towards low-earners, then their pension reward should be treated as egregious.

I mentioned last year the case of Whitbread, that runs a pension scheme which (accidentally) denies its low earners the savings incentives they’d have got if the scheme was set up as “relief at source”. I am not surprised to see Whitbread as one of the companies that pays its exec 31% or more in pension contributions (the extreme bottom right blue box).

Whitbread appears to me an organisation that isn’t really thinking of treating all its stakeholders fairly – at least as far as pensions goes. There are undoubtedly many others but as the Whitbread pensions team are high-profile in our industry, I’m continuing to point to them to ask why they are not dealing with this issue.

Pensions are no longer a perk

My final point is wider. People do not properly understand their pension contribution promise as part of their pay. The separation of pensions from other remuneration in executive pay reporting doesn’t help this, it continues to suggest that pensions are apart.

Pensions are no longer a perk – a workplace pension is part of being at work, a right – like a minimum wage and statutory sick pay. That is what auto-enrolment has done.

I have nothing against executives being rewarded at a greater rate than the main body of staff but I don’t see why they should have pension perks in the form of higher contributions or compensation schemes for tax bills incurred from high pension reward.

So long as people see executive pensions as they used to see “executive washrooms”, pensions will continue to be considered by ordinary people as something to aspire to – rather than to have by right.

The smart thing for reward managers to do right now is to start getting it into executive’s heads that pension contributions are part of pay and not an executive perk and to get them to realise that in this new world of ESG , the days of disguising remuneration through pension payments are well and truly over.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to Pensions aren’t perks – they’re pay!

  1. George Kirrin says:

    Spot on, Henry.

    And while we’re at it (“it” being the long continuing misinformation about total pay and perks) we should be told the actuarial equivalence of accumulated executive benefits as they are typically paid or will be paid in practice (largely undiscounted, way overly generous), and the rest, expense allowances, free shares, etc.

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